Thursday, November 5. 2009Residential ADSL - No Real Future?John Linton We met with our bank manager yesterday to discuss the various possibilities of buying new floor space in the event that our planned growth in developing our business revenues much more quickly continues to stay on track and to get his/his bank's views on the economy over the next 12 months. All bank managers are loathe to express any firm opinions that could, in any ways, be considered 'advice' in the legal senses of that word but he didn't say anything that varied from our own views as far as I could determine. In essence he sees no reason why we shouldn't buy additional floor space up to an ex gst buy price of less then $A2.5 million and the bank would be happy to lend us the money if that's what we decided to do. So that was the only barrier that may have prevented from us doing this out of the way and the dependency now is just what we see as the future of the Exetel business in these changing times. He did ask one pertinent question which was "why, after almost six years of constant fast and profitable growth, are we thinking of changing direction so significantly". It is an obvious question to which there is a very obvious answer of course....essentially the residential ADSL market is now approaching nine years 'old' and it is 'saturated' in terms of further growth and under challenge by at least two new technologies. This is seperately indicated by the ABS results published in August 2009 showing that in the first six months of this year the number of ADSL users didn't grow at all and the same indication reported by both Telstra and Optus in their full year annual reports around the same time. David Thodey's recent (last week) share holder briefing also tended to confirm this view with his statement of Telstra's broadband numbers of 2,500,000 ADSL users (after nine years) and over 1,000,000 HSPA users (after two years) with a further comment that it seemed likely that Telstra would have more HSPA users than ADSL users within 2 - 3 years. If you look at what has been happening in terms of residential ADSL 'offers' from a variety of suppliers over the past few months you very much get the impression that there is a 'desperation' in them trying desperately to attract users with more and more downloads but almost no (no?) downward per plan level price movement - usually the signs of selling as low as you can go but it isn't working. It will be interesting to see what, if anything, Telstra's foreshadowed ADSL price reductions achieve if they in fact transpire as 'promised' by Mr Thodey at the cited Telstra share holder briefing. So, it appears to me, that the residential ADSL marketplace, at nine years old, is approaching its 'use by date' and is characterised by the 'use by date' scenarios of - no growth, intense competition,no ability to innovate/me tooism rampant and reducing margins for profit. The business market on the other hand appears to be the total reverse - with one massive, once in a generation, plus - for Exetel. Like the residential ADSL marketplaces the business marketplace is well past the sunset years of the major technology used by smaller businesses - SHDSL. It is now well past ten years that the first 2mbps/2mbps SHDSL circuits were the revolution in small/medium business internet delivery mechanisms with something like close to a 400,000 of that type of circuit in use around Australia. The overwhelming majority of thise circuits are being provided by the major carriers and, amazingly, the average price of such circuits is a staggeringly high $1,500 to $1,800 per month. Recently, as with all delivery technologies, innovation has provided the ability for a small company like Exetel to offer the same speed service for one quarter of the cost of a carrier's service or alternatively offer a 20mbps/20mbps circuit for half the current carrier supplied service......a compelling offer for most sensibly run businesses. But it gets even better than that. As can be seen from the current "inability" of the ADSL suppliers to reduce their prices per customer the same issue prevents the carriers from offering their current totally over charged customers the benefits of the new technology - they can't afford to take the 75% reduction in their current small/medium business revenues. This applies to the carriers and any other suppliers that have built an SHDSL user base over the past ten years - the technology is available to them but they won't offer it because they would destroy their business revenue bases. So the opportunity exists, as it often does once every decade or so, to use the new technology cycle to offer compelling cost and performance benefits in marketplaces where the incumbent suppliers have every reason not to offer the benefits to their customers and there becomes a 1 - 2 year 'window' in which a company that both recognises and is able to invest in taking advantage of that opportunity can achieve revenue, profit and market share gains that are only occasionally available. That's the theory. The investment in people and training as well as the cost of floor space and facilities is of course massive for a company of Exetel's size and financial resources. But compared to the current ADSL residential marketplaces......no brainer really.
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Whilst I agree that ADSL has probably reached saturation point as far as new connections are concerned, wouldn't there still be an opportunity for ISP's like Exetel to grow by sucking up the customers from other more expensive ISP's?
Also going off topic is/has Exetel been looking at IPV6? I would like to start experimenting with a full IPV6 network. I know there are available tunnel brokers that can allow me to do this, but I was just curious if Exetel have available dual stack ports. Darren Comment (1)
There are undoubtedly opportunities to grow the number of residential users via customers of other ISPs transferring to Exetel - and the majority of Exetel's month to month growth of its residential ADSL base is via churns/transfers from other ISPs.
In general terms it is more sensible to expend money on a 'green fields' market than trying to wring the last 'drop of blood' from a saturated market. On you other issue you would need to post on the Exetel Forum. Comments (4)
2.5 million Telstra ADSL customers. Them there's ripe pickings!
Comment (1)
Undoubtedly Mr Thodey has reached the same opinion - hence his 'pre-announcement' of price cuts for Telstra ADSL customers.
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I suspect that ADSL is reaching a similar point to that which Electricity supply achieved quite some time ago... pretty-much everyone that wanted it, has got it.
Of course that doesn't mean that there's no longer a market for the product. Just like Electricity supply, Telephone, and water supply, ADSL is now considered by many as a de-facto “essential service”. The biggest problem that Telstra and Optus face is that their products are over-priced, and that's why they are experiencing zero or negative growth. Exetel does not have that particular impediment, and I believe that’s the reason why Exetel has not experienced a similar downturn. Now is the time when genuine innovators like Exetel can make real inroads into building their ADSL client base, as many Telstra/Optus customers who have been trapped on 24 month contracts with these thieves are finally being released. I also think this is one of the reasons why many of the other ISPs are maintaining or even increasing their ADSL prices… because even though they are more expensive and lesser value than Exetel, they are still miles better value than Telstra and Optus, and they realise that there are good picken’s to be had, and lots of new customers to be gained. Exetel needs to find some tactics to get information to these people too... that there is real value to be had. They need to be informed that there are alternatives out there which are every bit as reliable as Telstra/Optus, and cheaper than most other ISPs too, with more and better inclusions. They need to know about Exetel. ADSL still has a lot of life left in it for those with vision. While I agree that HSPA is the big mover ATM, I do not think that this rise is at the expense of ADSL, but rather, this rise is alongside ADSL. HSPA is actually replacing dial-up, which always had the advantage over ADSL of portability (albeit without the speed), and therefore was a very convenient option for a large group of people. This is the situation in my own case, but I would NEVER give up my Exetel ADSL connection. (unless it was prised from my cold, dead hands… is that what they say???) Comment (1)
Everything you say makes perfect sense but if we had the 'luxury' of spending money on advertising then it would be better spent on business services promotion.
Comments (4)
Hey John,
Have you seen this yet: http://www.itnews.com.au/News/159841,day-14-film-industry-continues-to-hold-up-exetel-as-model-isp.aspx Rohan. Comment (1)
No I hadn't - but I don't see what relevance to anything it has.
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